G20 leaders say yes to investment, no to tax evasion

As the current Chair of the G20, Russia is focusing its attention on to the need to increase investment to spur a global recovery. Source: Press Photo

The forthcoming G20 summit in St. Petersburg hopes to map out a solution to one of the forum’s main tasks: The stimulation of economic growth. As the host country, Russia will place investment procurement at the top of the agenda.

The tone of the summit has already been set by the G20 Finance Ministers and Central Bank
Deputies' Meeting, held in
late July in Moscow. In their final communiqué, the participating finance
ministers outlined action plans according to three main goals: examining ways
to increase long-term investments; combating tax evasion, and, most
importantly, promoting growth in the world economy.

The latter was the main
object of the St. Petersburg Plan of Action, which will be finalized by
September and submitted for consideration at the summit. This comprehensive
plan, as stated in the communiqué, is intended to stimulate growth through job
creation.

A key topic of the summit will be the economic slowdown
currently affecting not only recession-scarred Europe and the
underemployment-hit U.S., but also developing countries, whose GDP growth rates
have slowed markedly.

"The focus of the summit will be the slowdown in the
world's leading developing economies observed over the past few years. Partly
it is the result of cyclical processes, and partly a lack of structural
reforms," states Nariman Beravesh, chief expert on macroeconomics at IHS
Global Insight.

In July, the IMF cut its global growth forecast for the
year from 3.3 to 3.1 percent. The figure for developed countries remained unchanged at
a paltry 1.2 percent, while the picture painted by the IMF for developing countries
was somewhat gloomier.

In July, the country's Purchasing Managers
Index (PMI) not only fell (for the first time since August 2011), but was down
to below 50 points — the lowest level since December 2009. That followed
pessimistic appraisals for the Russian economy from the IMF and the World Bank,
which lowered their forecasts for GDP growth in 2013 to 2.5 percent and 2.3 percent, respectively.

As the current Chair of the G20, Russia is focusing its
attention on to the need to increase investment to spur a global recovery.
"Overall, economic recovery comprises two major tasks: how to kickstart
the investment process, which drives development, and how to reduce risk
through building an international financial architecture and correcting for
imbalances that could lead to a new crisis," the head of the Economic
Expert Group Evsei Gurvich points out.

According to Yaroslav Lisovolik, chief economist at
Deutsche Bank, a core challenge for the G20 is the creation of institutions to
manage investments. The opinion is shared by economist Dmitri Polevoy of ING
Bank, who believes that greater control is required to ensure that investments
are effective, to be supplemented by changes in government policies to support
investors.

Another crucial issue to be discussed at the G20 is the
"de-offshoring" of the global economy, including coordinated measures
to combat tax evasion. According to Lisovolik, "It is imperative that all
countries play ball, and do not seek to channel financial flows."

The fight against tax evasion is closely linked to
anti-corruption policy, which is also on the agenda of the upcoming summit. The
plan — initiated under Russia's presidency and set for further development
after the handover to Australia — provides for coordinated action to ensure the
independence of anti-corruption agencies, introduces measures to tackle money
laundering and the proceeds of corrupt activity, and imposes restrictions on
the movement of public officials found guilty of corruption. Politicians expect
the business community not to remain on the sidelines.

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In addition, Russia has "inherited" other issues
from previous G20 meetings that will not escape the attention of the world's
top politicians. The ongoing reform of the international financial architecture
and financial regulation is of particular importance in this respect.

For
instance, the revision of IMF quotas in favor of developing countries was approved
by the G20 back in 2010, but the reform has since stalled, causing anxiety
chiefly among BRICS countries.

On a more positive note, the heated debates witnessed in
2011 and 2012 over the "currency wars" appear to have lost their
edge. Prior to Moscow's presidency of the G20, universal fears had been stoked
by the standoff between China and the U.S., as well as Brazil's exchange rate
interventions.

But the lack of criticism at previous G20 summits over Japan's
easing of monetary policy, which has significantly weakened the yen,
effectively sanctioned the use of loose monetary policy by central banks
everywhere to achieve the main objective of stimulating economic growth.